Posted on 06/03/2005 6:25:59 PM PDT by Righty_McRight
NEW YORK - L-3 Communications Holdings Inc., a maker of satellite and marine communication equipment, is buying defense contractor Titan Corp. for nearly $2 billion in a cash deal that will give it a major stake in servicing U.S. military and intelligence agencies.
San Diego-based Titan is L-3's largest acquisition to date and will boost the company's ability to compete as a prime contractor for government business, coming at a time when spending on defense equipment and technology continues to grow.
Frank Lanza, L-3's chief executive officer, said Friday that while L-3 and Titan operate in the same business segment, the companies are focused on certain niches that complement — rather than compete with — each other.
"There just aren't many companies left in that mezzanine area that you can make an acquisition, particularly a company that is so complementary to L-3 and which we don't compete with at all," Lanza told analysts on a conference call. "We don't compete with Titan. We might have had one competition in the last six or seven years."
New York-based L-3 agreed to buy up all of Titan's shares at $23.10 apiece in cash for a total of about $1.97 billion. L-3 is also assuming about $680 million in debt as part of the deal, which is expected to close during the second half of 2005.
The offer is a slim 1.4 percent premium to Titan's Thursday closing price of $22.79, its highest price in almost four years, but tops a $20-per-share bid from defense contractor Lockheed Martin Corp. that Titan accepted before that deal collapsed in mid-2004.
Speculation over a possible deal lifted Titan's stock in recent weeks, but L-3's bid came in below analysts' expectations and sent shares falling 32 cents to close at $22.47 on the New York Stock Exchange. Meanwhile, L-3 shares jumped $3.12, or 4.4 percent, to $74.15.
But Joe Nadol, an analyst with JPMorgan, said he believes the acquisition is expensive and that L-3 will not see more than $10 million of pretax savings from the combination.
"We believe that L-3 will be able to generate some limited cost synergies, but as with any defense merger, most savings go back to the customer," Nadol said in a report. "The amount that can be kept by L-3 in this case would be particularly limited by Titan's concentration of cost-plus contracts."
Titan's board unanimously approved the deal, which is pending clearance from regulators and Titan shareholders. Titan said separately that it postponed its June 7 annual meeting to give investors more time to mull the offer.
Titan, which provides technology services and supplies translators and interrogators to the military, previously agreed to be acquired by Bethesda, Md.-based Lockheed, but a federal probe into claims that Titan employees had bribed foreign officials to win contracts ultimately derailed the transaction last year.
Lockheed originally offered $22 per share, or $1.8 billion plus assumed debt, but reduced its bid to $1.66 billion after twice extending a deadline for Titan to settle the case. Last June, Lockheed scrapped the deal, citing "uncertainty" surrounding the claims.
Earlier this year, Titan pleaded guilty to violating federal anti-bribery laws and agreed to pay more than $28 million to settle allegations that it sought to influence elections in Benin in exchange for higher management fees on a telecommunications project.
On Friday, Titan also said it settled several class-action lawsuits in California and Delaware stemming from the foreign bribery probe. L-3, which said the acquisition is contingent on court approval of the settlement, estimated the liability at $62 million.
L-3 said acquiring Titan will help broaden its offerings to a number of government customers, including additional business from the Navy.
Lanza said that three-quarters of Titan's 12,000 employees already have U.S. government security clearances. About 5,000 of those have special or top-secret clearance, "an asset you can't price because ... it takes two years to get somebody cleared in that world."
The acquisition is projected to add about $2.7 billion in annual sales, and should boost earnings by 5 cents per share in 2005 and 25 cents per share for the year ended Dec. 31, 2006, L-3 said.
L-3, which has about 44,200 workers, posted net income of $381.9 million on revenue of $6.9 billion in fiscal 2004.
For the same year, Titan recorded a loss of $38.4 million on sales of $2.05 billion.
I own LLL and the owners must have got a good price for Titan because the stock popped over 3$.
BTTT
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